Cross-Country Convergence in Income Inequality

Working Paper 2013-290

Abstract

Neoclassical models imply convergence of the entire distribution, not just the mean income levels. In this paper, we test for convergence in income inequality across countries. We compile extensive data on gini indices over a period of 25 years. Convergence in inequality is tested separately for developed and developing countries, using cross-section and panel data. We estimate a dynamic panel model using the GMM estimator and as well as an efficient OLS estimator for a smaller sample. Our results indicate that during 1980 and 2005 inequality converged across countries. The speed of convergence in gini indices is faster than the conventional 2% per year speed of convergence in per capita income. Developed countries appear to have converged faster than developing countries. The result of convergence in inequality is robust across different time horizons, data sources and estimation methods.

Authors: Shatakshee Dhongde, Xing Miao.